On Aug. 3, 2015, Bradesco announced it entered into a Share Purchase and
Sale Agreement to acquire 100% of HSBC Brazil, taking over all
operations of HSBC in Brazil. The completion of the acquisition is
subject to regulatory approvals, which are expected within the next four
to six months. The acquisition price is USD 5.2 billion and will be
adjusted based on HSBC Brazil's asset variation until the completion of
the transaction.

HSBC Brazil is the sixth largest commercial bank in Brazil and has a
market share of 3% of system deposits. As the seventh largest asset
manager in the country, HSBC Brazil has a 3.4% market share. The bank
has around 5 million clients and a significant foothold among high-end
individuals. The transaction will result in an expansion of around 16%
of Bradesco's assets. Given the lower current profitability of HSBC
Brazil and the challenging operating environment in Brazil, Fitch
expects some initial reduction of the overall profitability, of the
resulting entity on the first and maybe second years following the
completion of the acquisition, in terms of operational ROAA. This lower
profitability level would still be consistent with Bradesco's current
ratings and ample enough to foster further internal capital generation.
Also, Fitch is not expecting any deterioration on Bradesco's overall
asset quality due to the acquisition.

Fitch believes the HSBC Brazil acquisition has good complementarity with
Bradesco's business model and should help the bank expand its high-end
retail banking client base, asset management franchise and corporate
banking platform. With this acquisition Bradesco will be closing the gap
with its closest competitor, Itau Unibanco S.A. by reducing the distance
in terms of total assets, total deposits and total loans.

The acquisition will be fully paid in cash and result in a sizable
goodwill, bringing Bradesco's Fitch Core Capital ratio (FCC) down to
slightly below 7% from the current 8.9%, as of June 2015. This ratio is
expected to recover to levels above 8% after one year following the
completion of the acquisition assuming historical dividend pay-out
ratios and moderate asset growth. Fitch will continue to monitor the
evolution of Bradesco's capitalization, focusing on its FCC.

Banks in Brazil are currently migrating to BIS III capital guidelines
and the proposed transaction may result in a more substantial drop of
the current regulatory capital ratios given the phase in of new
deductions in the next 12 months. In any case, Fitch's FCC fully deducts
goodwill, intangible, tax credits and capital deployed to insurance
subsidiaries, and hence would not be affected by the aforementioned
phase in period.

The proposed transaction will not come without challenges, as any other
M&A transaction, regulatory approval, IT and business model integration
will be key. The preservation of talent and the ability to exploit
synergies presented with the transaction will require significant
efforts considering the current challenges of the operating environment
in Brazil. While Bradesco expects to increase the level of revenues per
client of HSBC's current retail and private banking clients, retention
of this client base is another challenge that Fitch will monitor.
Bradesco strong management execution and past history managing similar
transactions should help to navigate through those challenges.

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